Shale gas and Germany’s energiewende : a cost-benefit analysis for the power generation sector
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- Master Thesis 
This paper analyzes the question of shale gas production in Germany aimed at aiding the power generation sector in its compliance with the country’s greenhouse emissions reduction goal, one of the pillars of the nation’s energy transition (Energiewende). After discussing the key characteristics of natural gas markets and unconventional gas, and the chief constraints faced by the country as it attempts to increase the share of renewables in its electricity mix, we begin our analysis of the costs and benefits of shale gas production in Germany. We begin our analysis by defining how much natural gas will be needed in future decades for electricity generation under different scenarios of energy efficiency and renewables penetration in the electricity mix, and project the amounts that can be produced domestically using existing conventional reserves. We find that in all cases, a significant amount of natural gas will be imported during the 2020s and 2030s, and that demand for natural gas will increase in following decades in scenarios with low to medium renewables penetration. Through an analysis of potential shale gas reserves, we determine that, given the relatively small quantities that can be extracted, German shale gas alone cannot significantly shift the supply curve outwards and lower prices, and that the primary benefits will be strategic. By projecting the possible evolution of natural gas import prices, we calculate the degree to which shale gas production could aid Germany in maintaining its trade surplus. We find that, while shale gas could reduce imports by up to € 10.76 billion per year, electricityMrelated gas imports alone are unlikely to tilt the country’s trade balance into a longMstanding trade deficit. On the issue of energy security, we find shale gas to be helpful in reducing the country’s exposure to foreign sources – by up to 40.3% over the studied period. However, we also identify a number of alternative solutions that Germany can apply in order to reduce its supply risk, making shale gas less of a stringent necessity and less of a game changer. A final benefit we identify from shale gas is the positive effect it can have on employment levels and investment in the regions it interests. This, coupled with the rise in government revenues through taxes and royalties, could play an important role in changing public opinion’s perception of shale gas and hydraulic fracturing, and is in line with the Energiewende’s secondary goal of maintaining competitiveness and employment levels high. On the cost side of our analysis we find environmental damage, primarily with regards to groundwater contamination. While less likely than in North America due to local geological conditions, accidents of this kind will have much stronger consequences in Germany because of the region’s higher population density. While prevention is possible, moreover, risk cannot be eliminated altogether. In conclusion, we find shale gas production to be a potentially useful tool in tackling some of the challenge posed by changes in the worldwide energy market and by Germany’s energy transition. However, our analysis suggests that it will not be the game changer it was in the United States. Throughout our analysis, additionally, we stress the importance of a favorable legislative environment: was the German government to decide that shale production is a desirable choice, taxation mechanisms and environmental restrictions would have to be set up in order to ensure that the endeavor is potentially profitable for companies – thereby sparking interest in investment – and not dangerous to the local population.